Baldwin has a Masters in Financial Strategy from the University of Oxford, and also completed the Oxford Global Investment Risk Management Programme. Baldwin graduated with honors from Antioch University with a BA in Management. Mr. Baldwin successfully completed Harvard Business School’s Private Equity and Venture Capital along with Harvard’s John F. Kennedy School program on Investment Decisions and Behavioral Finance. Baldwin was the 2nd African-American member of the Chicago Stock Exchange, has passed series 7, 63 and 24 license designations. Baldwin founded an investment bank that participated in over $68 billion dollars in IPO underwritings.

Euro Exegesis

Exegesis is defined as a critical explanation or interpretation of a text, often a biblical one. The word itself was derived from the Greek term meaning to ‘lead out’. Both the definition and term are applicable concepts in regards to the European debt crisis. Everyone wants to be led out of this nightmare, but leadership from a market perspective has been sorely lacking. An effective policy governed by legal tenets in combination with a definitive rubric for the members of the common currency has not been crafted, and the market reaction serves as the grade for that leadership. Two of the key leaders in the euro drama, Jens Weidmann and Angela Merkel, have attempted to proselytize to member countries and the markets repeatedly. They have outlined their interpretations of the financial exegesis of the European Central Bank’s (ECB’s) mandate with a fervor that borders upon religious zeal–these interpretations call for no easing. This is not the message that the markets wish to hear.

So consequently, we saw the euro plunge to an 11 month low, as faith in the newly constructed plan was panned upon further review by capital market participants. I watched sanguinely as reporters pronounced the new lows. The decline wasn’t perplexing to me, as I called for a weakening euro in IMF Past and Present Protocol on November 28th. I clearly stated that the trade would be to sell the euro and buy the dollar. As an additional consequence, gold broke its 200-day moving average. I outlined the focus on gold and its price reduction in Currencies, Credit Ratings and the Compact on December 9th, in the commentary I stated that the decline of gold would signal the rise of the dollar. All three of these events unfolded today creating a tremendous sell-off, as anticipated. Additionally, the commodity markets were negatively affected by the rise of the dollar, so the declines then spread to the commodity-based stocks further accelerating market erosion. Finally, the Federal Reserve Bank made matters worse by opting not to ease at this time. The market was expecting easing as Bernanke had stated that he was ready to ease on the basis of European Union risk. The combination of these factors completely decimated market confidence.

Due to the sell off, throughout the day market pundits proceeded to call for Mario Draghi to act immediately. Massive easing by the ECB would be highly beneficial to both the U.S. and global markets, as the Germans are running the risk of staving off inflation at the risk of depression as the crises continues to get larger. However, do not look for sustained purchasing by the ECB, most likely Draghi will choose to participate indirectly through the IMF, the EFSF and the ESM as previously alluded to in Eurozone Crisis Solutions. Expect Germany to reinforce this policy aggressively.

As a testament to this philosophy, Weidmann even stated the Bundesbank would provide 45 billion euro ($59 billion) to the International Monetary Fund–with the condition that non euro nations participated as well. This is once again a reference to Brazil, China and Russia to participate in the western lead entity, as Germany seeks to spread the burden and risk of the crisis. All of the necessary easing mechanisms and structures are in place now. As the easing begins expect that all markets will rise. The standing maxim has been “Don’t fight the Fed.” This will be multiplied as central banks around the world will be aligned in printing. Beware the tail of this trade, as we will not simply inflate this debt away. Although markets will swell initially, the real underpinnings of a recession will still persist in light of a rising dollar. This will be the harbinger for the U.S. markets as they will begin a tremendous negative slide once they are no longer Fed-powered.

There is a silver lining to euro’s precipitous drop, in that its decline will hasten austerity measures by European politicians. Simultaneously, the weaker currency will aid the competitiveness for the member countries. Conversely, the weakening euro will strengthen the dollar as I have stated multiple times. The tail trade from excessive ECB printing of euros will be that commodities will rise in concert. So, the multibillion euro question is when will Mario Draghi decide to ease? I will outline that next in a commentary entitled: Enter the ECB.

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